Asia\'s economy enters into shifting phase

Asjadul KIbria from Yokohama, Japan | Published: May 06, 2017 21:05:48 | Updated: October 21, 2017 23:40:00

Progress of the Asian Development Bank (ADB) is widely linked with Asia's development journey in the last five decades. The regional bank formally started its operation in 1966 in a bid to facilitate the Asian countries to overcome the many challenges they were facing. Initially focused on supporting food output when Asia was suffering huge shortage of foodstuff and poverty was quite severe across the region, the regional bank later went on to expand its activities to physical infrastructure, regional connectivity, among others.
During the last 50 years, Asia has become more integrated. Asian economies have become more resilient to absorb global shocks and their share in global trade has also increased significantly. Asia and the Pacific region now accounts for 40 per cent of the global economic output. 
The 50th Annual Meeting of the Board of Governors of the ADB now taking place in the Japanese port city Yokohama (May 4-7) highlighted all these major achievement in Asia. At the same time, participants raised their concern on persistent poverty and growing income inequality across the region.
As the ADB's key development indicators of 2016 revealed, 330 million people in the region are severely poor, out of around 4.44 billion people living in the largest region of the world. Some 0.30 billion people don't have the access to safe drinking water and 1.5 billion people lack proper sanitation.  In any count, these figures clearly demonstrate that economic growth is not enough and that much more is needed. The huge amount of capital flight from the region also indicates that growth is not distributed in a balanced manner among the people and wealth concentration at the hand of the few is on the rise. While share of manufacturing is still below 20 per cent in many countries, Gross Domestic Product (GDP) of the most of the countries are dependent on service sector.  
Against the backdrop, Asian economic structure has started to shift which creates new challenges as well as opportunities for the region, as  also for the ADB. 
DOMESTIC DEMAND & REGIONAL TRADE: Growth of Asian economy is mostly led by China and India as two-thirds of Asia's population live in these countries. Bangladesh and Indonesia are also gradually contributing along with other developing nations in the region. Rapid growth pushed the economies to transform from low-income to middle-income category. Currently, 95 per cent of Asian developing countries are classified as middle-income economies. The rise of middle-class and growing domestic demand of these countries are now driving the Asian economies. Number of middle-class population is rising at a faster pace and is projected to jump to 1.7 billion by 2020. Currently, the number is close to one billion.
Thus in the coming days, domestic demand and consumption will drive Asian economy, and countries will have to supply more goods and services for their own people. In that case, cross-border trade in Asia may slow down for the time being. However, this is not to say that trade will decline heavily. Asian countries are now doing more trade among themselves than they used to do even two decades ago. That's why, ADB chief economist mentioned that Asian countries are now more dependent on themselves. For instance, Bangladesh is importing around 70 per cent of its products from the countries in Asia.  The intra-Asia growing trade means these countries are supplying more products to each other and thus the global value chain in Asia is booming. In other words, there is a rising trend of Asian value chain. 
The latest protectionist wave in the global north fuelled by the US President Donald Trump and the Brexit has been casting shadows on global growth. International Monetary Fund (IMF) and the World Trade Organisation (WTO) jointly issued a paper last month expressing concern about the uncertain future of global trade due to growing protectionist trend.
ADB, however, is yet to find any serious negative impact on Asian trade due to such protectionist move in Europe and America. It is mainly due to the still unclear and uncertain polices of the global north. Moreover, ADB also believes that it is not possible to make any serious disruption in the global trade as the countries are so much linked with each other. Nevertheless, it is the open trade that contributes significantly to generate faster growth in Asia and the regional development bank is always in support of trade liberalisation. 
CHALLENGES: China's growth moderation is, however, becoming a concern as it may slowdown the overall economic growth in the region. But, as ADB's chief economist pointed out, there is nothing wrong in such moderation of growth as it is a natural phenomenon in the cycle of economic journey. He compared the situation with Japan's economic growth moderation in 1970s and mentioned that Chinese economy is now gradually shifting to a new phase. It is the industrial transformation in China that is taking place and it will be visible in many other countries within few years. 
In fact, in line with the UN Agenda-2030 or Sustainable Development Goals (SDGs), ADB is focusing on green sustainable growth and encouraging the regional countries to move in this direction. Dealing with the threat of climate change is also on the agenda of ADB and has already devised its Strategy 2030. The issue of inequality is also there. There is also the issue of infrastructure and the region needs $1.7 trillion every year to invest in power, transport, telecommunications and water, throughout 2030.  
Asia is now facing the aging problem and some countries of the region may be trapped into older generation syndrome.  Another risk of sustainable growth is originating from rapid urbanisation as the process is posing increasing threats to environment. So, shifting of Asian economy is critically linked with the challenges. ADB's 50th annual meeting calls for taking the challenges seriously.

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